China wakes up, smells Nestlé’s ‘unique’ coffee flavor

Nestlé’s ‘smart investment’ in Chinese whole bean coffee is likely to consolidate its market-leading position within the category there, as it stands poised to release a local product, according to a top beverage analyst.

Euromonitor International global beverage analyst Jonas Feliciano said in a company podcast: “Nestlé is thinking in terms of Chinese growth opportunities. The coffee market there broke the $1bn mark in 2012, and is forecast for another $500m growth over the next five years.

“By creating a coffee brand with domestic roots, Nestlé really positions itself for continued dominance of market share in China, which was already over 70% value share in 2012."

The market is under-penetrated, with AC Nielsen data from September 2012 showing that the Chinese only drink three cups per capita yearly, compared with 1,218 in Finland and 451 in the US.

“Whichever way you shake it, coffee in China really represents a strong opportunity, and Pu’er beans as well as other regional beans are just a smart investment in today’s coffee culture,” Feliciano said.

Subtlety and variations

Feliciano said Nestlé had invested in its Pu’er, Yunnan province coffee plantation since the 1980s, and that it was now China’s largest coffee-producing province, growing high-quality Arabica beans.

“Production levels by no means match some of the world’s top producers – for instance, Brazil, Colombia, Ethiopia and Honduras,” Feliciano said.

“But the interest in the beans in the region from coffee giants like Nestlé and Starbucks, really illustrates some of the subtleties and variations that coffee can provide.”

Starbucks’ interest in Pu’er related to its need for locally source beans for the continued expansion of its coffee shops across the country, Feliciano said, adding that this was top priority for the firm.

Examining coffee on a global level, Feliciano said that the question of fresh coffee – meaning coffee brewed from ground beans, versus instant coffee – was often the first categorization people made.

“But there is a plethora of other nuances to coffee, which go well beyond fresh and instant [usually made using Robusta variety beans]. An innumerable number of instant coffee varieties,” he added.

“3-in-1 coffees with creamer and sugar mixed in, 5-in-1s that use flavors and other functional ingredients on top of that creamer and sugar.”

New layer of differentiation

When talking fresh coffee, more typically made using Arabica beans, Feliciano noted that the way people prepared the brew varied from country to country and household to household.

“But this latest news out of Yunnan, and Nestlé and Starbucks’ interest in Pu’er, speaks to yet another layer of differentiation for world coffee drinkers, and by that I mean bean origin,” he said.

In a similar fashion to wine, the regions where beans grow have a direct impact on coffee flavor, caffeine content and even mouth feel, Feliciano said.

“Saying that all coffee beans are the same is like saying that all wine comes from the same type of grapes. Subtleties in flavor vary wildly, and provide consumers with a degree of customization that many soft drinks makers are envious of,” he added.

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Nestlé’s ‘smart investment’ in Chinese whole bean coffee is likely to consolidate its market-leading position within the category there, as it stands poised to release a local product, according to a top beverage analyst.